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Cushman & Wakefield
Launches Interactive Lease
Accounting Calculator
Current Standard
IAS 17 / US GAAP
New Standard
IFRS 16 / Topic 842
Finance
Leases
Operating
Leases
All Leases
Assets
-
Liabilities
£ $ €
-
£ $ €
Off Balance
Sheet Obligations
FINANCE
NEW LEASE ACCOUNTING RULES
The new lease accounting rules will
fundamentally change the way leases
are recognised on a company’s financial
statements.
For companies that report under
International Financial Reporting
Standards (i.e. non U.S. companies),
the new rules apply from 2019. For U.S.
companies, the introduction of the new
U.S. GAAP rules is being phased in with
public companies adopting in 2019 and
private organisations in 2020.
These new rules will impact all future
leasing decisions such as acquisitions,
renewals and re-gears, so it is important
that everyone is aware of these changes.
BALANCE SHEET CHANGES
From a Balance Sheet perspective, the
treatment of leases under the new IFRS
and U.S. GAAP standards is similar. In
future, all leases will appear ‘on-Balance
Sheet’ as an Asset and Liability. On
implementation, Balance Sheets will
balloon and companies will appear to
have a greater asset base with higher
levels of debt.
PROFIT & LOSS CHANGES
The Profit & Loss (Income Statement)
is where the new IFRS and U.S. GAAP
standards differ.
U.S. GAAP Topic 842 – Dual model
Companies will need to classify their
leases as:
•
Finance Lease:
Similar P&L (Income
Statement) treatment to IFRS 16.
•
Operating Lease:
Straight-lined lease
expense is recorded as a single line in
operating expenses in the P&L
Under the new U.S. GAAP standard, the
existing Finance Lease / Operating Lease
treatment for the P&L has been retained.
As the majority of real estate leases will
be classified as ‘Operating Leases’ under
the new U.S. GAAP standard, the Profit &
Loss will continue to be the
same as the
rent paid.
IFRS 16 – Single model
For companies that report under IFRS
(i.e. Non- U.S. companies), the Profit &
Loss will no longer equal the rent paid
under the lease. Instead, lease payments
will be split into:
•
Amortisation
– Recognised on a
straight-line basis over the lease term
•
Interest
– Front loaded at the start of
the lease
The Profit & Loss will be
higher than
rent
at the start of the lease. The P&L
will
reduce
over the course of the lease
term due to the lower interest charge.
Companies will be seeking to minimise
the ‘P&L spike’ at the start of the lease
wherever possible by seeking shorter,
more flexible lease terms.
Balance Sheet Impact
300
400
500
600
700
200
100
0
RoU Asset
Lease Liability
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
Thousands USD
800
900
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